Mish's Global Economic Trend Analysis

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• Managing Director of Sovereign Ratings at S&P on Possible US Debt Downgrade to "D" Default if Debt Ceiling Not Raised
• Corn, Soybean, Wheat Futures Plunge on Crop Report; Inflation, Interest Rate Outlook
• Obama-Pimco Fear-Mongering Duet Chants More Sour Notes
• Weekly Unemployment Claims Exceed 400,000 12th Consecutive Week, Exceed 420,000 Nine out of last 10 Weeks

Managing Director of Sovereign Ratings at S&P on Possible US Debt Downgrade to "D" Default if Debt Ceiling Not Raised Posted: 30 Jun 2011 03:34 PM PDT John Chambers, managing director of sovereign ratings at Standard & Poor's, talks about the outlook for U.S. lawmakers to reach an agreement to raise the debt limit and avoid an S&P downgrade of the sovereign top-level AAA ranking on the U.S. to D. Select Quotes If any government doesn't pay its debt on time, the rating of that government goes to D We are talking about the sovereign rating of the US government If you get to the situation where the government hasn't paid its debt, you will have very serious disruptions throughout the money markets, in the repo markets, the foreign exchange markets and the bond market. It will be much more chaotic than September 2008 [collapse of Lehman]. This also supports our view this will not happen. The policy makers will understand that. They [the government] can prioritize payments and that would not be a default by definition. However, you would have to contract payments in a massive way overnight. And that would have a very sharp negative fiscal impulse to the economy Government has raised the debt ceiling 78 times, many times at the 11th hour but later on the month of July, Democrats and Republicans will reach a compromise. It is interesting to see the statement "policy makers will understand". We are talking about Congress here. One could equally say "we are talking about the S&P raters here". Either way I am hoping there will be no compromise. The more government spending is cut, the better off taxpayers will be. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Corn, Soybean, Wheat Futures Plunge on Crop Report; Inflation, Interest Rate Outlook Posted: 30 Jun 2011 10:14 AM PDT Grain futures are sharply lower across the board as traders had positioned themselves for shortages because of Midwest flooding and increasing demand from emerging markets and China. Instead, corn stocks were 11 percent bigger than analysts expected and a bumper crop could be on the way according to the report. Please consider Grain markets plunge on US acres, stocks The U.S. corn supply is far larger than thought and a bumper crop could be on the way, the Agriculture Department said on Thursday in a report that shocked traders and shoved grain markets sharply lower. Farmers defied expectations by planting significantly more corn acres despite rain and floods, and sky-high prices curbed demand which left June 1 stockpiles 11 percent larger than traders had predicted. The dramatic turnaround from fears of bare-bones supplies could signal comfortable supply levels for the coming year and ease fears about high world food prices. "American producers stepped up," [USDA's] Vilsack told Reuters Insider. At the Chicago Board of Trade, corn for July delivery was down 10 percent, or 72 cents per bushel, at $6.26 in morning trade, and deferred contracts were locked down the limit of 30 cents per bushel. The July contract is in its delivery period and trading without limits. July wheat was down 8 percent, or 49 cents, to $5.92-1/4. July soybeans were down 1 percent, or 19 cents, to $13.15-1/4. Red-hot demand from corn exporters, livestock feeders and processors had been expected to consume every bushel grown in 2010 and eat into reserves, but the higher stocks number was a sign that demand has been rationed. "We planted more acres than the trade had thought earlier in the year because we sent the signal to plant," said analyst Don Roose of U.S. Commodities. "The other thing was, we did find a way to slow down usage." The USDA said the corn stockpile was 3.67 billion bushels on June 1, and it pegged plantings at 92.28 million acres. With normal weather and yields, a record-large crop could be harvested. The soybean stockpile was 4 percent larger than anticipated by analysts, although plantings were 2 percent smaller. The soybean crop would still be the third-largest on record, but supplies are expected to run tight for another year. Wheat stocks were 4 percent larger than traders expected and plantings were down marginally. The USDA reports imply that corn growers would harvest 13.5 billion bushels of corn, which would be a record, and 3.2 billion bushels of soybeans, which would be the third-largest on record. Both estimates are Reuters' calculations and assume normal weather conditions and yields. A mammoth crop would fatten the corn stockpile to nearly 1 billion bushels, but soybeans would run tight through fall 2012. Grain Futures December corn was limit down 30 cents. However, front month contracts are in delivery warning period and there is no limit. Those playing front-month contracts on expectations of a lousy crop report were massacred. Corn Daily Chart Inflation Outlook With crude prices falling and corn hammered, expect the next set of CPI figures to be tame. Bear in mind I do not consider prices to be a valid measure of inflation. Oil rising because of peak oil has nothing to do with inflation. Nor does rising grain prices based on flooding. Nor does demand from China have anything to do with inflation in the US. Thus, this plunge has nothing to do with inflation or deflation either. Inflation and deflation are monetary phenomena. As far as inflation goes, these price movements are noise. However, for those who think price is what matters, prices are headed down. Interest Rate Outlook If oil and food prices continue to drop, ECB president Jean-Claude Trichet may change his tune on rate hikes. Of course Trichet will be out of the picture soon as his term expires in October. In the US, the Bernanke Fed got another signal to keep rates excessively low. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Obama-Pimco Fear-Mongering Duet Chants More Sour Notes Posted: 30 Jun 2011 09:11 AM PDT The Obama-Pimco fear-mongering duet is chanting the same sour notes again today. This time the spotlight is on the president. Bloomberg reports Obama Assails Republicans as Gulf in U.S. Debt-Limit Talks Remains Wide President Barack Obama accused Republicans of siding with corporate jet owners over children and the elderly in deficit negotiations and compared Congress's work ethic unfavorably with that of his pre-teen daughters. Obama's comments underscored the distance between the White House and Republicans on talks to cut the deficit and raise the government's debt limit as Standard & Poor's warned it would downgrade U.S. debt to junk status in the event of a default and the Senate canceled its July 4 recess to continue talking. "The yellow light is flashing," Obama said yesterday during a news conference, warning of dire consequences if Congress doesn't raise the borrowing limit before Aug. 2, when the Treasury Department projects it will no longer be able to meet all its obligations. "This is a jobs issue," he said. "This is not an abstraction. If the United States government, for the first time, cannot pay its bills, if it defaults, then the consequences for the U.S. economy will be significant and unpredictable." If the U.S. misses a payment on its debt because Congress doesn't raise the debt ceiling in time, Standard & Poor's would cut the U.S. credit rating from its sovereign top-level AAA ranking to D, the last rung on its scale, said John Chambers, chairman of the company's sovereign rating committee. Obama cast the differences in moral terms. "Before we ask our seniors to pay more for health care, before we cut our children's education," he said, "it's only fair to ask an oil company or a corporate jet owner that has done so well to give up that tax break that no other business enjoys." House Speaker John Boehner rebuffed him, saying in a statement issued soon afterward that Obama "is sorely mistaken if he believes a bill to raise the debt ceiling and raise taxes would pass the House. The votes simply aren't there, and they aren't going to be there." Senator Tom Coburn, an Oklahoma Republican who last month dropped out of a bipartisan group of senators trying to reach a deficit-reduction deal, said on PBS's "The Charlie Rose Show" on June 28 that it is increasingly likely House Republicans won't act on the debt limit by the Aug. 2 deadline. "If we don't have major changes to entitlements, I don't see how you get that vote through the House," Coburn said. Obama Sings the Pimco "Unpredictable" Note Obama is singing the same tune as Pacific Investment Management Co. LLC Chief Executive Officer Mohamed El-Erian who said "We would be in the land of the unpredictable if lawmakers fail to reach an agreement to raise the $14.3 trillion debt ceiling". Like the president, El-Erian is singing his book. For details, please see "Land of the Predictable": Pimco CEO Warns U.S. Debt Default Might Have "Catastrophic" Effect As noted previously, president Obama is a hypocrite. President Obama's Hypocrisy Inquiring minds just may be interested in knowing Obama's track record on debt ceilings when he was Senator Obama. The Obama administration is warning of catastrophic consequences if Congress does not increase the debt ceiling, the legal limit on how much the federal government can borrow, but Barack Obama held a different view on the issue as a senator in 2006. Five years ago, then-Sen. Obama (D-Ill.) voted against raising the debt ceiling and even spoke about it on the Senate floor before the Republican-controlled Senate voted 52-48 to increase it. "The fact that we are here today to debate raising America's debt limit is a sign of leadership failure," Obama said on March 16, 2006. "Leadership means that 'the buck stops here.' Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better. I therefore intend to oppose the effort to increase America's debt limit." Failure of Leadership I remind the president "The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better." Expect Duet to Grow to Mormon Tabernacle Choir Size As we approach the deadline, expect the duet to grow in size. To be fair, there are a more than a handful of fear-mongers already. Ben Bernanke wants Congress to do something about the deficit, just not now. So does the IMF. Other Fed governors have chimed in with similar statements already. Yellow Light is Flashing I agree with the president that a "yellow light is flashing". The president however, does not understand the meaning. The light is flashing because the time to do something about the budget deficit is now. Please disregard the self-serving fear-mongering of president Obama and Pimco CEO El-Erian. Americans deserve better, and the way to do that is to act responsibly on a deficit-reduction package now, not 10 years from now. Phone your Congressional representative and let them know what you think. Click Here For Congresional Phone And Fax Numbers Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Weekly Unemployment Claims Exceed 400,000 12th Consecutive Week, Exceed 420,000 Nine out of last 10 Weeks Posted: 30 Jun 2011 07:10 AM PDT The labor market remains stuck in the mud since April second, the last time seasonally adjusted initial unemployment claims fell below 400,000. Initial Unemployment Claims For 2011 Please consider the Department of Labor Weekly Claims Report. In the week ending June 25, the advance figure for seasonally adjusted initial claims was 428,000, a decrease of 1,000 from the previous week's unrevised figure of 429,000. The 4-week moving average was 426,750, an increase of 500 from the previous week's unrevised average of 426,250. The recovery is now 2 full years old. Yet, the 4-week moving average of weekly claims remains an elevated 426,750. 4-Week Moving Average of Weekly Claims The 4-week moving average of weekly unemployment claims is at or above recession levels. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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